Era of Growth, Rapid Economic Growth

industrial output, Japanese exports, Japanese economy, focus of public attention, external events

By the early 1960s the focus of public attention had shifted from international issues to domestic economic ones. Prime Minister Ikeda Hayato, who took office in July 1960, announced a plan to double household incomes over the next decade. This dramatic announcement was welcome news to the public. After decades of economic depression, wartime hardship, and postwar austerity, ordinary Japanese were more interested in a secure and comfortable future than in grand political issues.

The recovery of the economy had already begun during the Korean War (1950-1953), when UN fighting forces had used Japan as a logistical base. Procurement of military supplies and repair of damaged military equipment stimulated Japanís manufacturing sector. The Korean War boom was followed by a series of new growth spurts in the late 1950s. Indeed, from 1955 to 1973 Japanís gross national product (a measure of a countryís total economic output) grew at an annual average rate of 9 percent, much faster than any other industrial economy was growing at that time. By 1968 Japan had become the third largest economy in the world. To be sure, the whole world economy was expanding during this period, but Japanís success seemed to be an ďeconomic miracle.Ē

The reasons why the Japanese economy grew so fast are complex. First, a bureaucracy with jurisdiction over economic matters, based in the Ministry of International Trade and Industry (MITI), the Ministry of Finance (MOF), and the Bank of Japan (BOJ), had considerable administrative power to promote industrial growth through tax breaks, import and export licenses, and direct subsidies. The economic bureaucracy backed high tech industries that could supply the domestic market and compete in international markets as well. Second, corporate leaders were more interested in company growth and market share than in short-term profits, and thus they constantly reinvested their gains in updating and improving technology. Third, corporate policy stressed the need to develop and hold on to loyal and highly skilled workers. Large corporations guaranteed their workers lifetime employment, wage and salary increases based on seniority, and corporate welfare benefits. Fourth, the Japanese work force was well educated, driven by a strong work ethic, and disinclined to strike or carry out work stoppages. Fifth, Japanese consumers, responding to the new availability of high quality consumer goods such as refrigerators and automobiles, eagerly bought up industrial output. This expansion of the domestic market was the driving force behind rapid growth. And finally, the Japanese economy was not burdened by heavy military expenditures and the taxes needed to pay for them because Japan depended on the United States for its basic national defense.

The era of rapid economic growth ended in the early 1970s, when Japanís economy underwent a sudden slowdown brought on in part by two external events. In 1971 the United States abandoned the system of fixed foreign exchange rates that had been in place since World War II. This change caused the value of the yen to rise, and consequently, Japanese exports fell. In 1973 an increase in crude oil prices caused recessions in countries around the world; in Japan it inspired panic buying by consumers who feared shortages and price increases, double-digit inflation, and a sudden slowdown in the growth rate. Timely government and corporate policies, including a drive to expand Japanese exports, soon overcame these difficulties, but growth continued only at a much slower and steadier rate of 4 to 5 percent, about half what it had been during the high growth years of the economic miracle.